Why not follow the catch-up rule for 2026 too?

By now, many retirement-services people have learned that an applicability date of an executive agency’s rule that interprets Congress’s statute does not control when the statute applies.

About the recently published catch-up rule, many articles explain that one follows the final rule by 2027, and for 2026 may defend a good-faith interpretation of the statute.

Considering the opportunities and flexibilities the final rule allows, why not follow it for 2026 too?

To do something beyond what the final rule allows, the employer and the plan administrator would need to think about what that something is and be ready to defend how one formed a prudent finding that it is a reasoned interpretation of the statute.

Even if an interpretation need not be formed with an ERISA fiduciary’s prudence, a good-faith interpretation must be formed with at least the ordinary prudence that would be used by a business-prudent employer that is conscientiously seeking to follow tax law. Such an effort might be more expensive than simply following the final rule.

And for a TPA, recordkeeper, or other service provider to maintain a pretense that it did not provide tax or other legal advice, might it be simpler to follow the final rule?

Yet: BenefitsLink neighbors, if time, effort, and money were no constraint, is there anything you’d want to allow in 2026 that the 2027-applicable interpretation doesn’t allow?

We are going to party like its 2027.  This is going to be process-heavy, and it does not make sense for us to have one set of rules for 2026 and then change them for 2027.  We will likely find issues in 2026 that will inform us on revisions for 2027, but we want to stay consistent.  

Side question, is anyone considering a defaulting catch-up to Roth, and requiring a participant to opt out?  It is clear that a participant must be allowed to make pre-tax contributions in order to designate them as Roth contributions, so you can't require that catch-up can only be made as Roth.  But default with an opt-out to pre-tax with appropriate notices and disclosures could limit the need for corrections. 

Some plan sponsors might not decide which deemed election (if any) to implement until there is an immediate need to apply one.

For some situations, that might happen as soon as January. But for many typical situations that might not happen until 2026’s spring, summer, or autumn.

Illustration: For 2026, Jill elects a deferral of $1,354.16 for each semimonthly pay period [$32,500 / 24]. Jill does not elect that any portion of that amount be made as Roth contributions.

Jill would not exhaust 2026’s $24,500 limit on non-catch-up deferrals until the year’s 19th pay period. For the first 18 of 24 pay periods, the plan can credit Jill’s non-Roth deferrals.

1 hour ago, RatherBeGolfing said:

We are going to party like its 2027.  This is going to be process-heavy, and it does not make sense for us to have one set of rules for 2026 and then change them for 2027.  We will likely find issues in 2026 that will inform us on revisions for 2027, but we want to stay consistent.  

That's what we are doing...